Economic expansion will continue worldwide with average growth of 2% in developed countries this year, according to the 2019 ESADE Economic and Financial Report, directed by David Vegara and carried out in collaboration with Banc Sabadell. In the coming year. The report predicts a correction in the coming year for many economies that had been growing beyond their potential. Japan, for example, will slow to 1.9% growth in 2019 and to 1.5% in 2020. The United States, however, will grow by 2.5%, thanks to its expansionary fiscal policy. Other countries that will grow above their potential include Canada, Australia, Sweden and Norway.

This year, the business cycle will reach maturity in the eurozone, which will grow by 1.8% overall. The region’s main difficulties are political: Brexit, negotiations to control the public deficit, and hurdles to achieving the necessary fiscal and financial integration. ESADE’s experts warn that the economy could slow down even more if the most heavily indebted countries fail to reduce their public deficit, or if Germany and the Netherlands do not apply more expansionary economic policies. The experts urge European authorities to accelerate the region’s economic and fiscal integration, arguing that “the survival of the common currency depends on it”. Elsewhere in Europe, the best figures will be posted by Eastern countries, especially the Czech Republic and Poland, which will see growth of nearly 3%. In contrast, Turkey will stagnate, posting GDP growth of less than 0.5% as a consequence of last summer’s financial crisis and interest rate hikes.

The fading promise of emerging countries

In the coming year, the emerging and developing economies will post growth figures similar to those of 2018. India will grow by 7.4%, while some countries of Southeast Asia – in particular, Indonesia, the Philippines and Vietnam – will maintain a growth rate of just over 5%. However, expectations that these countries will be able to reach per capita income figures comparable to those of developed economies will begin to fade in 2019. Capital inflows to these regions fell by $50 billion in 2018, leading to a net outflow of $20 billion. An additional decrease of $40 billion is expected in 2019, bringing the year’s net outflow to $10 billion.

Meanwhile, in China, the economy will slow down somewhat, posting growth figures of 6%-6.5%. The 2019 ESADE Economic and Financial Report warns that China has a limited capacity to respond to the US trade war by increasing tariffs. The report also highlights the expansionary measures taken by the Chinese government to counteract the trade war. These measures include changes to regulations affecting financial institutions – a loosening of rules regarding asset management, financial products and the extension of credit – as well as various tax cuts, including an income tax cut and the expansion of corporate deductions for investments in research and development. According to ESADE’s experts, these measures are useful for maintaining short-term growth, but they also decrease the speed with which the imbalances generated over the past year can be corrected, leading to a number of medium- and long-term hazards that must be kept under control.

As for Latin America, Brazil and Mexico will consolidate growth rates of more than 2%, while Chile and Colombia will grow by more than 3.5% and Peru will exceed 4%. At the other extreme are Argentina – which will be in recession for the second consecutive year, with growth of -1.6% – and Venezuela, which is expected to remain in a deep recession.

Main risks: protectionism, financial tensions and high debt

According to the ESADE Economic and Financial Report, the main risks for economic growth in 2019 include the intensification of protectionist trade policies and an increase in financial tensions derived from the threat of a faster-than-expected normalisation of monetary policies or an abrupt correction of asset prices. The report also warns of problems that could give rise to high levels of debt worldwide and the potential extension of unsustainable economic policies in a growing number of countries.

As for Europe, ESADE’s experts insist that the eurozone must seek greater economic, financial and fiscal integration in order to address the difficulties facing the region. The experts also recognise the dangers posed by Brexit and the negotiations to reduce the public deficit of the Italian economy. According to the report, Brexit will pose a real danger starting in 2021, since a messy exit from the European Union – which is still a possibility – would compromise commercial and political relations between the two sides. During the transition period that will last from 29th March 2019 until late 2020, the relationship between the parties will remain similar to the current situation. During this period, the parties will need to negotiate a deal to establish the United Kingdom’s status with regard to the European Union as of 2021. If no agreement is reached, a customs union will automatically take effect and major uncertainties will remain.